Freelance Hourly Rate Calculator
How to Calculate Your Hourly Rate
Determining the correct hourly rate is one of the most critical steps for freelancers, consultants, and independent contractors. Unlike a traditional salary where your employer covers overhead, taxes, and paid time off, your freelance rate must encompass all these factors. If you simply divide your desired salary by 2,080 hours (a standard 40-hour work week year), you will likely undercharge significantly.
The Core Formula
This calculator uses a "bottom-up" approach to pricing your services. The logic follows this structure:
- Total Revenue Needed: This is the sum of your Desired Annual Income (Gross) plus your Annual Business Expenses.
- Work Capacity: This calculates how much time you can actually sell. We subtract your weeks off (vacation, holidays, sick time) from the 52 weeks in a year.
- Billable Hours: Not every hour worked is billable. You spend time on marketing, invoicing, and administration. A realistic billable load for a full-time freelancer is often 20-30 hours per week, not 40.
Understanding the Inputs
To get the most accurate result from the calculator above, consider these definitions:
1. Target Annual Income
This is the gross amount you would like to pay yourself. If you were employed, this would be your base salary. Ensure this number covers your personal living expenses, personal taxes, and savings goals.
2. Annual Business Expenses
These are costs specific to running your business that are not part of your personal salary. Examples include:
- Health insurance premiums (if self-pay)
- Software subscriptions (Adobe, Office, Accounting tools)
- Hardware (Laptops, Cameras)
- Coworking space fees or Home Office deduction allocation
- Professional liability insurance
- Marketing and advertising costs
3. Billable Hours vs. Actual Hours
This is the most common pitfall. If you work 40 hours a week, you cannot bill 40 hours. You need time for:
- Answering emails and client communication
- Business development and pitching
- Accounting and administrative tasks
- Skill development
Rule of Thumb: Most successful freelancers aim for a 60-70% utilization rate. If you work 40 hours, enter 25-30 hours into the "Billable Hours" field.
Why Add a Profit Margin?
The calculator includes an optional "Profit Buffer." In a standard job, the company makes a profit on your labor. As a business owner, you should also aim to generate profit beyond just your salary and expenses. This capital allows you to reinvest in the business, weather dry spells, or expand later. A 10-20% margin is a healthy target for service-based businesses.